How do I estimate a market size?

How do I estimate a market size?

Estimating a market size should be done in the knowledge that it is often just that … an estimate! It is highly unlikely that an exact figure with which everyone agrees will be found and making a decision on how best to arrive at a final outcome will depend on several factors including:

the relative size of the investment being made

the requirement for a broad market view vs. a deep-dive assessment

the need for trend data (past and future)

whether strategic actions are to be taken as a result

Knowing that we are making an estimate or assessment of market size, we should make our calculations in different ways to enable validation and cross-checking of results.

There are three main methods of calculating market size:

Top-down market size

Taking a bird’s eye view of published reports and macro data to understand the broader landscape and a more holistic view of the market.

This involves using a combination of published data, previous research, government reports and potentially input from industry experts to offer a high-level, holistic view of the market.

In collating as much relevant information as possible it is important to remember that a range of sources will need to be used. Ideally, online and offline information should be used. When searching online, ensure you go beyond ‘first-hits’ and Google searches alone and that all information should be checked and validated before being used.

Supply side market size

Based on understanding and assessments of the size of the different suppliers in a market.

This involves looking at all suppliers in a market and estimating or calculating their individual sales to build an overall figure i.e. the sum of all suppliers’ sales.

Company websites, press articles and sales literature can provide clues but often judgement and experience will be required to convert published information into useable sales estimates.

Demand side / bottom-up market size

Taking data about end-users and the product/service of interest to create a formula for estimating market size.

In relatively small, accessible markets it may be possible to quantify demand from all potential customers via a census. However, in B2B markets where we can rarely reach all customers it is more likely that estimates will have to be made based on knowledge gathered about the wider population – ideally from primary and secondary sources.

For example, to estimate the market size for a new design of welding helmet, we would first need to estimate the number of workers in the relevant industries. Once we know the number of workers, we can estimate the proportion that weld on a regular basis and therefore require a helmet. From here, we need to think about the lifecycle of a helmet and how frequently it is used/replaced to estimate the likely number of sales per year.